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We Need the Legal Entity Identifier

on 25 October 2019

I attended a Global Legal Entity Identifier Foundation (GLEIF)/Data Coalition event on October

24: “GLEIF Washington Forum: Accelerating into a Digital Future: Simplifying Entity

Identification for the Digital Age”. If you are unfamiliar with the LEI, this is what GLEIF says

about LEI:

“The Legal Entity Identifier (LEI) is a 20-character, alpha-numeric code based on the ISO 17442

standard developed by the International Organization for Standardization (ISO). It connects to

key reference information that enables clear and unique identification of legal entities

participating in financial transactions. Each LEI contains information about an entity’s ownership

structure and thus answers the questions of 'who is who’ and ‘who owns whom’. Simply put, the

publicly available LEI data pool can be regarded as a global directory, which greatly enhances

transparency in the global marketplace.”

So unlike a tax number or stock ticker or other common shortcuts for an organization’s identity,

LEI seeks to create a unique fingerprint independent of region or purpose or characteristic.

Here’s Magna Internationals’ LEI: 95RWVLFZX6VGDZNNTN43. There are ultimately 14 entities

reporting up to that entity. I know this from a very useful search tool at

https://search.gleif.org/#/search/ .

I have included this information in the midst of my “original goals for XBRL” series even though

it directly wasn’t an original goal, although accountability through digital signatures was.

However, the power of data with a “laser pointer” at an organization permeates the business

reporting supply chain.

I have two legacy situations - one at the detailed level and one at the reporting level - where the

pervasive use of such a fingerprint could be powerful. The newer situation, of course, is

blockchain. If we want auditability and traceability, we don’t want to have ambiguity in

identification. I’m imagining there may even be ways to create hashes of the LEI for one way

proveability.

Anyway, for XBRL GL, one of the early success stories was an early adopter who used XBRL

GL to make the output of different accounts payable systems more comparable. Using a

common coding system for the vendor number from the start (e.g, LEI) would make this

identification child’s play.

The other is an older vision of mine not yet realized. The importance of certain relationships with

a reporting company are pretty well known. Related party transactions are one area. Another is

major customers. The latter resonated with me.

Image if all major customer disclosures identified the customer with the LEI. You would instantly

have an unambiguous, analyzable network of interrelationships. Is there a disaster that will

impact companies in a specific region directly? You will now be able to unambiguously trace the

impact one, two, three steps away. Is an industry failing? You will now be able to trace the

potential impact on those organizations that thrived with those parties as customers.

Finding company - and intercompany - data with laser accuracy appears to be on its way. Some

very powerful stories were shared in DC.

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